1. C H A P T E R
08
Intellectual Property and
Unfair Competition
I dream for a living.
Steven Spielberg
quoted in
Time magazine
July 1985
8-1

2. Learning Objectives
• Differentiate the various intellectual
property rights: patent, copyright,
and trademark
• Describe infringement and defenses
• Explain misappropriation theory and
the importance of trade secrets
• Identify the elements a plaintiff must
prove in unfair competition claims
8-2

3. Types of Intellectual Property
• PATENT:
– Engine design,
business
methods
• TRADEMARK
– Logo, trade
name
• COPYRIGHT Marketing materials for Case
Construction Equipment
– Sales materials,
artwork
8-3

4. Patent
• Grant from federal government to an
inventor in which inventor obtains
exclusive right to make, use, and sell his
invention for a period of 20 years (14
years for designs)
• U.S. Patent Act requires registration
– http://www.uspto.gov/
8-4

5. Patent
• A patent will not be issued if more than
one year before patent application the
invention was patented elsewhere,
described in a printed publication, or in
public use or on sale in the United States
– Example: Pfaff v. Wells Electronics, Inc.
• Inventor sold patented item on April 8, 1981
• Inventor applied for patent on April 19, 1982
• More than one year passed, thus the patent
was invalid
8-5

6. Patent
• Protection for: a process, a machine, a
product or manufacture, a composition of
matter (such as a new chemical
compound), an improvement of any of the
above, an ornamental design for a product,
a plant produced by asexual reproduction,
certain business methods
• Even though an invention fits one of the
categories, it is not patentable if it lacks
novelty, is obvious, or has no utility
8-6

7. Bilski v. Kappos
• Bilski and Warsaw applied for a patent on
methods for hedging risks for commodities
trading, but the Patent Office rejected the
application as covering an abstract idea not
eligible for patent protection under § 101 of
the Patent Act; appellate court affirmed.
• Supreme Court: the invention, in this case (a
risk-management method), may not be
patented; nevertheless, business methods can
be patented, even if the method does not
pass the "machine or transformation" test
8-7

8. KSR International Co. v. Teleflex, Inc.
• Teleflex sued KSR claiming one of KSR’s
products infringed on a Teleflex patent
• Issue was whether disputed patent claim was
obvious
• Supreme Court – obviousness determined by
– Scope and content of the prior art;
– Level of ordinary skill in the art;
– Differences between claimed invention and prior art;
– Objective evidence of nonobviousness (commercial
success, long-felt but unsolved needs, and failure of
others)
8-8

9. Patent Infringement
• Infringement occurs when defendant
makes, uses, or sells patented invention
without patentee’s authorization
• Remedy: monetary damages
– Global-Tech Appliances, Inc. v. SEB S.A.
• Infringement established by literal
infringement or doctrine of equivalents
– Whether alleged infringer’s subject matter
performs substantially same function as protected
invention in substantially same way for same result
8-9

10. Copyright
• Intangible right granted by statute to
the author or creator of certain tangible
literary or artistic productions
– Can’t copyright an “idea”
• Applicable law: Copyright Protection
Act and Copyright Term Extension Act
Visit the U.S. Copyright Office
8-10

11. Copyright
• Protection automatic; registration not
required, though recommended
• Works created after 1/78 are given
protection for life of author + 70 years
• Protection for a work-for-hire
(corporation owns copyright) is 95 years
from first publication or 120 years from
creation, whichever comes first
8-11

12. Work-for-Hire
• A work-for-hire exists when
– an employee, in the course of her regular
employment duties, creates a
copyrightable work; or
– an individual or corporation and an
independent contractor (nonemployee)
enter into a written “hire” agreement
under which the non-employee creates
a copyrightable work for the individual or
corporation
8-12

13. Infringement
• Violation of intellectual property right:
when someone uses, makes, or sells
another’s trademarked, patented, or
copyrighted intellectual property
without owner’s permission, license,
franchise
• Penalties -- actual or statutory
damages in civil proceedings or
criminal penalties for willful violations
8-13

14. Proof of Infringement
• Infringement generally requires proof that:
– defendant had access to protected work;
– defendant engaged in enough copying
(deliberately or subconsciously) that
resemblance between allegedly infringing
work and protected work could not be
coincidental; and
– substantial similarity exists between the
works
8-14

15. Metro-Goldwyn-Mayer Studios, Inc
• Facts & Procedural History:
– Defendants Grokster and StreamCast
Networks, Inc. distributed free software
that allowed computer users to share
electronic files through peer-to-peer
networks
– Many copyright owners (collectively
referred to as MGM) filed separate lawsuits
against defendants and the cases were
consolidated
8-15

16. Metro-Goldwyn-Mayer
Studios, Inc. v. Grokster, Ltd.
• Facts & Procedural History:
– MGM sought damages and injunction
alleging defendants knowingly and
intentionally distributed software to enable
users to reproduce and distribute copyrighted
works in violation of the Copyright Act
• Issue:
– Under what circumstances is distributor of a
product capable of both lawful and unlawful
use liable for acts of copyright infringement
by third parties using the product?
8-16

17. Metro-Goldwyn-Mayer
Studios, Inc. v. Grokster, Ltd.
• Legal Reasoning:
– One infringes contributorily by intentionally
inducing or encouraging direct
infringement, and infringes vicariously by
profiting from direct infringement while
declining to exercise a right to stop or limit it
– Substantial evidence shows defendants
acted with a purpose to cause copyright
violations by use of software suitable for
illegal use
8-17

18. Metro-Goldwyn-Mayer
Studios, Inc. v. Grokster, Ltd.
• Holding:
– One who distributes a
device with the object
of promoting its use to
infringe copyright, as
shown by affirmative
steps taken to foster
infringement, is liable
for the resulting acts of
infringement by third
parties
8-18

19. The “Fair Use” Defense
• A fair use defense or exception exists
when a copyrighted work or trademark
is used without the property holder’s
permission, but the use was:
– “For purposes such as criticism, comment,
news reporting, teaching (including multiple
copies for classroom use), scholarship, or
research” Section 107 of the Copyright Act
8-19

20. The “Fair Use” Defense
• A court weighs several factors in a fair
use determination:
– purpose and character of the use,
– nature of the copyrighted work,
– amount and substantiality of portion used
in relation to copyrighted work as a whole,
– effect of use on the potential markets for
the copyrighted work or on its value
8-20

21. Compare Cases: Bouchat
• Concerned copyrighted Shield logo that
Ravens football team used and for which
the team was held liable for infringement
• Use of Flying B logo in season highlight film is
not fair use because use was significant and
for commercial (not transformative) purpose
• Use of Flying B logo in Ravens lobby is fair
use because use was transformative and
noncommercial
8-21

22. Compare Cases: Perfect 10
• Perfect 10 markets copyrighted images of nude
models which were republished without
permission and became thumbnails in Google’s
search engine
• In appeal of infringement case, Ninth Circuit
relied largely on the transformative nature of
thumbnails Google created, which facilitated
public’s ability to search web for images and
serve a different purpose than original images
(designed to entertain); such use is fair use
8-22

23. Trademark
• Distinctive mark, motto, device, or
emblem that a manufacturer or
service provider stamps, prints, or
affixes to products it produces or
services it performs to distinguish
products or services from those of
competitors
• Applicable law: Lanham Act
• Registration with government
recommended, but not required
8-23

24. Trademark
• “Trademark” applicable to:
– Trade name (e.g., McDonald’s, Nike)
– Trade image (e.g., Ronald McDonald)
– Trade logo (golden arches, swoosh)
– Trade dress (orange & red of McDonald’s)
• Trademark dilution is the diminishment
of the capacity of plaintiff's marks to
identify and distinguish plaintiff's goods
or services
8-24

25. Louis Vuitton Malletier, SA v. Haute
• Procedural History & Facts:
– Louis Vuitton Malletier ("LVM"), well-
known maker of luxury goods, sued a
Las Vegas company for infringement of
its marks and design copyright
– Defendant Haute Diggity Dog ("HDD"),
manufactures and sells chewable dog
toys intended to mimic and parody
famous luxury products
8-25

26. Louis Vuitton Malletier, SA v.
Haute Diggity Dog, LLC
• Procedural History:
– Defendant moved for
summary judgment to
dismiss and the trial court
granted the motion
• Issue on Appeal:
– Did defendant’s use of
LVM’s intellectual
property infringe on or
dilute LVM’s rights?
8-26

27. Louis Vuitton Malletier, SA v.
Haute Diggity Dog, LLC
• Legal Reasoning:
– LVM established prima facie infringement
case
– Copyright Act and Lanham Act recognize
certain statutory exceptions to protections
– “Purpose and character of use” factor in fair
use inquiry and asks what extent new work is
transformative and does not supplant original
• Parodic works comment and criticize, thus
often sufficiently transformative for fair use
exception
8-27

28. Louis Vuitton Malletier, SA v.
Haute Diggity Dog, LLC
• Holding:
– Clear parody and dilution claim fails since
successful parody might strengthen a
mark’s distinctiveness
• In the Starbucks case, the Second Circuit
held that Charbucks did not dilute Starbucks
mark, but further proceedings were required
to determine whether there was dilution by
blurring
8-28

29. E-Commerce Infringement
• Trademark dilution on the internet is
prohibited by the Anticybersquatting
Consumer Protection Act
• Creates civil cause of action against a
person who, with bad faith intent to profit
from a trademark, registers, traffics in, or
uses a domain name identical or
“confusing similar” to distinctive mark
– Example: Volkswagen sued Virtual World
for their registration of VW.com and won
8-29

30. Trade Secrets
• Trade secret: any secret formula, pattern,
process, program, device, method,
technique, or database used in the
owner’s business that offers competitive
advantage
• A firm must take reasonable measures to
maintain secrecy
8-30

31. Misappropriation
• Misappropriation of a trade secret
occurs when a person discloses or uses
after acquiring the secret:
– By improper means (theft, trespass, etc.)
– Through another party who is known or
should have been known to have
obtained the secret by improper means,
– By breaching a duty of confidentiality
• See Coleman v. Retina Consultants, P.C.
8-31

32. Commercial Torts
• Commercial torts are intentional torts
that involve business or commercial
competition
• Injurious falsehood (product
disparagement) involves publishing
false statements that disparage
another’s business, property, or title to
property, harming economic interests
8-32

33. Commercial Torts
• Intentional interference with contractual
relations occurs when one party to a
contract claims that the defendant’s
interference with the other party’s
performance of the contract wrongly
caused the plaintiff to lose the benefit of
that performance
See the
Lewis-Gale Medical Center
case
8-33

34. Commercial Torts
• Intentional interference with prospective
advantage parallels elements for
interference with contractual relations, but
prospective relations are focus (not existing
contracts)
• Section 43(a) of the Lanham Act creates civil
liability for unfair competition, including
misleading, confusing, or deceptive
representations made in connection with
goods or services
8-34

35. Time Warner Cable, Inc. v. DIRECTV, I
• Lanham Act tort in which multichannel video
service companies battled over whether
defendant had engaged in false advertising
on television and the internet
• Issue was whether statements were sales
puffery or literally false statements
• Television statements by TWC’s competitor
were literally false (not mere sales puffery)
• TWC demonstrated irreparable harm, thus
preliminary injunction affirmed
8-35

36. Test Your Knowledge
• True=A, False = B
– You may copyright an idea
– Copyright protection requires registration
with the U.S. Copyright Office
– The U.S. Patent Act requires registration of
a patent to obtain protection for the
intellectual property
– The Lanham Act protects trademarks
8-36

37. Test Your Knowledge
• True=A, False = B
– Trademark dilution refers to the overuse
of a trademark on products or services
– An employee who creates a new
software program has made a work-for-
hire
– The fair use defense is an absolute
defense to an infringement claim
8-37

38. Test Your Knowledge
• Multiple Choice
– A trademark refers to:
a) trade name
b) trade image
c) trade logo
d) trade dress
e) all of the above
8-38

39. Test Your Knowledge
• Multiple Choice
– Trademark dilution on the internet is
prohibited by:
a) Anticybersquatting Consumer
Protection Act
b) Patent & Trademark Act
c) Dotcom Protection Act
8-39

40. Thought Questions
• Music is intellectual
property. What do
you think about
people who download
music illegally? Have
they committed theft?
• If you create a new
product at your
workplace, is it yours?
8-40